CPF – F1 or F9 – Do you know who gets your CPF when you die?

By Leong Sze Hian

CPF announced the amendment of the treatment of Special Account savings invested in fixed deposits, and media reports that the CPF Board has reminded three non-bank investment administrators (IAs) that members’ CPF Investment Scheme (CPFIS) money used for investments cannot be parked in cash accounts.

Since the net interest rate currently, and that earned on these cash accounts for last year, was between 2.6 and 3 per cent, is it to the benefit of CPF investors to have these monies sent back to their CPF Ordinary Account (OA), which pays a lower interest of 2.5 per cent?

As fixed deposit interest rates now and since the CPF Special Account Investment Scheme (CPFSA) started about five years ago have never exceeded the 4 per cent interest paid for the Special Account (SA), why would anyone want to invest his or her SA in fixed deposits? So, why does the CPF Board allow SA monies to be invested in fixed deposits?

Keeping CPF money in cash accounts earning higher interest than the OA is not allowed, but fixed deposits earning less than the SA are allowed?

By allowing investment in an investment category that has always returned less than 4 per cent, CPF account holders who are not so savvy in investing may end up with less than the SA default interest.

I received a letter from one of the three IAs, informing me that

‘any balance CPF monies in your Cash Account(s), if not invested by Feb 5, 2007, will automatically be refunded to your CPFOA Investment Account with your Agent Bank and/or CPF Special Account by Feb 26, 2007. We wish to highlight that no interest will be accrued and payable to your Cash Account(s) with effect from Feb 1, 2007’.

So, what happens between Feb 1 and Feb 26? Nobody (IA or CPFIS Agent Bank or CPF) is paying any interest at all?

The change to treat SA savings invested in fixed deposits as part of the estate may mean that more of Singaporeans’ CPF could be subject to estate duty, because there is unlimited exemption from estate duty for CPF. Every time the CPF Board decides to make CPF utilised as part of the estate like the CPFIS, New Singapore Shares, etc, the benefit of unlimited CPF exemption is diminished.

In a way, the only party that benefits from such changes is the Inland Revenue Authority, by way of more estate tax collection.

The other implication is that the SA invested will be distributed in accordance to one’s will or intestacy, instead of by CPF nomination. Last year, when the Dependants’ Protection Scheme (DPS) was transferred to two private insurance companies, most of the 1.7 million insured did not know their CPF nomination was no longer valid, and they had to re-nominate or write a will depending on which insurer they were assigned. After much public furore in the media, the insurers have individually notified those insured to inform them.

I would therefore like to suggest that the CPF Board notify CPFSA account holders individually of the change as soon as possible. Otherwise, as in the case of DPS, every day there are people dying, without realising that their CPFSA fixed deposits may go to beneficiaries other than those they had intended under their CPF nomination.

For lower-income Singaporeans who die with a will and have, say, about $6,000 in their CPFSA fixed deposits, he or she would have to pay at least $3,000 in legal fees and costs for the estate probate and distribution.

Why not maintain the status quo and leave the SA as part of CPF, so that it can be paid to nominees without incurring any costs, shrinkage to the estate, or delay? How many people are savvy enough to know that if they know that they are going to die, they can liquidate all their CPFIS investments, CPFSA, use cash to redeem the CPF used for property purchase, for return to their CPF account to enjoy the unlimited estate duty exemption for CPF?

By the way, why is it that the Economic Restructuring Shares (ERS), which were given later than the New Singapore Shares (NSS), are not part of the estate, whereas the NSS are?

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